It doesn’t really matter whether you are a big time investor that has their whole fortune invested in crypto, or you’re just a college student who is stacking satoshis, storing your crypto is very important. Since this industry doesn’t work with banks to fall back on, you are the one that’s responsible for making sure that everything is set in place. You are the one that’s supposed to facilitate your everyday transactions, your long term investments and anything in between those two. To store your crypto, you need a wallet. Now, these wallets come in many shapes and forms. We’ll display your options and help you out with making a choice.
The Difference Between Hot Wallets And Cold Wallets
The biggest difference between the two wallets is the fact that the hot wallet is connected to the internet, and the cold wallet is not. If you put it blandly, the hot wallet can be accessed all the time, while the cold wallet needs to make a connection to the internet first to be accessed. There are dozens if not hundreds of options for you to choose from, but we’ll show some examples and see what suits you the best.
A hot wallet is a wallet that is constantly connected to the internet. These wallets come in many forms, and you have probably used one before. This kind of wallet is mainly used for fast access to your funds whenever you are transacting on a regular basis. Most of the exchanges use hot wallets in their users’ accounts to facilitate this quick access to their funds. As these wallets are already connected to the internet, and in the case of exchange probably to the internal network, it’s a convenient way of processing transactions. Here is an example of a hot wallet:
Within the Atomic Wallet you can buy, sell and exchange over 300 cryptocurrencies. They have desktop applications for Windows, Mac, Ubuntu, Debian, and Fedora, plus they give the opportunity to use their mobile application on your Android or iOS device. They pride themselves in anonymity and the fact that you have full control.
There are many more wallets, these are just two examples of wallets that have proven to be trustworthy and reliable over the years. These wallets are mainly used for fast access, but when you want to store your crypto for a longer period of time, you might want to enjoy a little more security, right?
As the name says, these wallets are cold as they are not connected to the internet. They are only used as ways of storing your precious funds for longer periods of time. Those who own hardware wallets usually keep these wallets somewhere safe and under an extra layer of protection. Now, where the hot wallets are connected to the internet and come in the form of mobile or desktop applications, cold wallets come in physical devices. Usually, they are little drives that look like USB-drives that contain all the required software to access your funds. You simply plug in your wallet into your computer, fill in your PIN, password or two-factor authentication and afterward you get to access your funds. Now, these cold wallets usually connect to hot wallets in order to facilitate the transactions. This is the moment you’ll be vulnerable to external threats as this is the moment you expose your wallet to the network. In practice, there’s a small chance of this happening, but you never know. Two examples of the most popular hardware wallets out there;
This is one of the most well-known hardware wallets out there. There are several editions but generally, they come in little flash drives that look like simple USB-sticks. Now, the difference here is, you can store thousands of cryptocurrencies on there. With the support of Bitcoin, Ethereum and many others, you are able to store whatever you like on there. The wallet looks fancy and it works smooth.
Usually, the Trezor wallet is the number one wallet that’s being compared to the Ledger in the race for the best hardware wallet out there. The Trezor is a little device that looks like one of these virtual machines that let you breed your own little animal back in the day. However, this machine allows you to store more than a thousand different cryptocurrencies and it works smoothly with loads of hot wallets.
For any hardware wallet, the process is pretty simple. You plug in your device, you send your coins to the wallet, unplug it from your computer and then store it somewhere safe. Now, this process does take a little longer than some people would want it, that’s why there are tons of people who give up a piece of security just for some extra convenience.
How to Find The Right Wallet?
You might be wondering, what is the right wallet for me? You might have experimented with many different wallets, but never really found the one wallet that fits all your needs. To find the right wallet, ask yourself the following questions;
- What kind of cryptocurrency user am I?
- Do I trade every single day?
- Did I just buy my crypto’s and I plan to hold them for years?
- Do I use cryptocurrencies to make payments?
- How many cryptocurrencies are you holding?
- The more you got, the bigger the threat from outside
- Are you willing to spend a little more to gain some more security?
- Is the wallet that I am with now custodial, or non-custodial?
- Meaning; Do you, or the company behind the coin, own your private keys?
- What is the company behind the wallet?
- Who is the team?
- Where are they from?
- Can I trust them?
There are many more questions and more variations to these questions, but if you start with answering these questions, you can get pretty far in finding the right wallet for you.
NOWNodes API Wallet
With NOWNodes we provide the opportunity for you to host your own wallet by using our API. Simply connect to the desired node that you like, depending on what kind of project you support, and set up your own wallet. By doing so, you have full control over this wallet. No need to trust anyone else but yourself in this manner.GET FREE API KEY
Frequently Asked Questions (FAQs)
This will be highly dependent on how secure you want your cryptocurrencies to remain. Specifically, when you move your keys to a cold wallet, it is impossible for them to be uncovered or compromised remotely due to the fact that they are essentially stored on a hardware device that is disconnected from the internet and exists within a physical space that you have control over.
However, this has the downside of accessibility, as you always have to find the hardware wallet device, connect it, authenticate it, and only then are you given the opportunity to transfer your cryptocurrencies on a centralized or a decentralized exchange through the usage of your private keys.
This means that through a hardware wallet device, you should ideally store cryptocurrencies that you have no intention of moving for a long time or ones that you are HODLing, as this will provide you with the highest level of security. As such, if you can, it is always recommended to store your cryptocurrencies in a hardware storage device.
While modern cryptocurrency exchanges that are centralized have implemented various security features, such as two-factor authentication (2FA) as well as insurance on a specific percentage of the holdings within the exchange a user has, there is always a level of risk involved with the compromise of the security of the exchange.
There have been historical events in which cryptocurrency exchanges have been hacked, and users have lost funds; what this means is that, no matter how a cryptocurrency exchange tries to be secure, it is directly connected to the internet and stores your cryptocurrencies for you. If it ever gets hacked, you could potentially lose your cryptocurrencies.
While many exchange accounts do indeed have security features, it is never 100% safe to keep your cryptocurrencies in a hot wallet, and this is something you have to keep in mind whenever you are storing large amounts of cryptocurrencies within a hot wallet. Note that there are on-exchange wallets that keep your private keys for you and off-exchange hot wallets, where you have full control over your private keys. The off-exchange wallets are typically a bit more secure but never as secure as cold wallet storage devices.
Hardware wallets are essentially small devices that you can connect to your computer directly through the usage of a USB cable in order to store cryptocurrencies.
Each hardware wallet will support its own set of cryptocurrencies, and some can even store more than 1,000 coins or tokens, while others have a smaller number of supported cryptocurrencies. Some might even exclusively store the Bitcoin (BTC) cryptocurrency. However, whenever you connect a hardware wallet to a computer, you can generate an address through which you can receive cryptocurrencies to the wallet.
You can then send crypto from the wallet to another crypto address. Each hardware wallet will also have a recovery phrase known as a recovery seed, which will allow you to recover your crypto if you lose the device in question. All you have to do to transfer your cryptocurrencies from a hot wallet to a cold wallet is to copy the coin address and paste it into the hardware wallet.
Typically, the hardware wallet will also come with its own software that will guide you through this process. Once the crypto has been successfully transferred, you can disconnect the wallet and place it in a safe location.
The best way through which you can store your cryptocurrencies that will provide you with the highest possible level of security is through the usage of a cold storage device.
What this means is that you can buy a physical device that has security features associated with it and can be disconnected from the internet completely as a means of storing your cryptocurrencies in the most secure way possible.
These devices are typically created and backed by security expectations and will keep your private keys offline, so all of your cryptos would be inaccessible to anyone outside of you, who can physically reconnect the device to a laptop or desktop device as a means of connecting it online again and accessing the cryptocurrencies stored on the blockchain network.
Keep in mind that while some hot wallets might claim to be secure, they are always connected to the internet, and on-exchange wallets will typically be hosted by the company that provides them, which always has some level of risk, no matter how small, of being compromised.
As such, it is always recommended for you to use a cold storage device for securing your cryptocurrencies.